World Saving
During the boom, China saved for a rainy day. This now looks wise, but it was only possible because of western countries doing the opposite. We no longer hear Eastern leaders saying that "the West should save, as we do". I guess they've figured out that it is impossible for everyone to save money.
Money is funny stuff. You can't actually move wealth into the future through money. That seems silly, since we do it all the time. However what actually happens is that when you put your $100 in a jar under the bed, then you create a tiny bit of deflation that makes all other dollar holders richer. Then when you take it out and spend it ten years later you cause a tiny bit of inflation that makes all other dollar holders at that time poorer, and that wealth is transferred into your $100 as you spend it. If you doubt this think: is any real wealth lost if the money is accidentally destroyed?
A country can only move wealth into the future through money if it is some external currency. This however puts that country's savings in the hands of that external country, as China has found. And when the amount of money under the bed is in the trillions then the normally prosaic act of getting it out and putting it back in circulation becomes quite tricky. However that may turn out, the relevant point for this discussion is that:
The World as a whole cannot move wealth into the future through money.
And yet there are a number of reasons why the World as a whole should now be doing all it can to prepare for a rainy day. Even though things aren't too flash now, they will get worse on the peak oil down-slope, before we can get the inferior alternative energy sources operational. We need to save.
Saving means doing things now that don't translate into consumption now. This means less consumption now: the very reverse of trying to restart business as usual.
The simplest thing to do is to stockpile useful stuff that is, or embodies, energy. That's what China is doing now: saving oil and iron ore instead of saving money. But there's another name for that: "hoarding". It is an amazing feat of modern thinking to perceive a simple act of preparing for the future as a negative thing. The explicit value of hoarding oil is that it is much more valuable than the current price: quite valuable enough to justify long term storage costs. The act of hoarding raises the current price. This might annoy current consumers (hence the negative name), but this is something we need to do to sustain the oil industry and postpone a complete collapse of the oil industry and everything else. Of course the cheapest place to store it is to leave it where it is, hence Sarkozy's suggestion of a producer-consumer deal on prices, but this seems likely to be politically impossible.
Another thing to do is to build infrastructure now that will be useful later. There's a lot of infrastructure building going on, but a lot is seriously misguided: like extra freeways. The infrastructure we need is for energy and for electrification of transport. We need to build those things now, even though they aren't justified by current economic conditions. Businesses don't spend money to prevent social collapse: that's the government's job.
Using public transport and occasional taxis is cheaper than owning a car. However, once you have (rightly or wrongly) bought a car, it changes your decision process on transport. You can now undertake trips that wouldn't have been justified previously, based on the marginal cost of using the car. You don't include an allowance for the sunk cost of the car when deciding whether to use it for a particular trip. This brings me to the next point.
Having built our low marginal cost energy plants, and our wonderful double track electrified railway network, then we need to make maximum use of those resources. We need to let the price we charge for them drift low towards the marginal cost (including maintenance), not try valiantly to make enough money to cover our sunk upfront costs. If it was possible to cover those costs as well as the marginal costs then business might have built that infrastructure rather than the government.
So how would we actually do this? The aim is to reduce the amount of consumption for immediate use in order to have money and workers available for the infrastructure costs (and for stockpiling as well). The way to do this would be to follow the model of "War Bonds" during war time, and issue "Energy Crisis Bonds" to soak up money. What such bonds should promise to preserve is their value as a fraction of total national wealth. Since the activities are not designed to be rigorously economically justified, they might reduce total national wealth, and hence the value of the bonds, but people will actually be happy to accept that if it is up front. And indeed we know that national wealth will decline in real terms for quite some time for other reasons. People are actually more interested in keeping their share of the total pie, rather than taking risks to preserve value in absolute terms.
There are other ways of saving:
- Useful education (small farming?);
- Relevant research and development (forget going to the moon);
- Cleaning up environmental problems rather than leaving them to our poorer descendants;
- Building a low power, mostly text, mostly wireless, free Internet infrastructure for relevant applications (such as education and transport optimization);
- ...your ideas here...
If the government were to do as I suggest and build energy and transport and provide them cheaply it would undercut businesses trying to deliver these services. Apart from fairness concerns, there have to be serious doubts as to whether governments can make good decisions in these areas. But it seems clear that business perspective is too short term and won't move until too late. The traditional American answer is to provide carrots and sticks for business to move in the directions that government wants. This often seems to combine the worst of both worlds, with poor targetting (e.g. biofuels) and it is very difficult for government to walk the line between too little incentive to do the job and too much granting windfall profits. My feeling is that we need a bit of socialism for a while to have any chance of getting through the Peak Oil downslope to hopefully find the nuclear electricity plus natural gas upslope. Leaving the energy/financial crisis to private enterprise will eventually leave the world's important assets in the hands of a small number of men who are more noted for their ruthlessness than their public spirit.
Even if the details are wrong the fundamental point is right: One of the things we need to be doing is saving and the thing we need to be saving, in various ways, is energy.
